Pembina Pipeline Corporation

Transcription

1 Pembina Pipeline Corporation TSX: PPL NYSE: PBA CKPC - PDH/PP Final Investment Decision February 4, 2019

2 Forward-looking statements and information This document contains certain forward-looking statements and information (collectively, "forward-looking statements"), including forward-looking statements within the meaning of the "safe harbor" provisions of applicable securities legislation, that are based on Pembina's current expectations, estimates, projections and assumptions in light of its experience and its perception of historical trends. In some cases, forward-looking statements can be identified by terminology such as "continue", "anticipate", "schedule", "will", "expects", "estimate", "potential", "planned", "future" and similar expressions suggesting future events or future performance. In particular, this document contains forward-looking statements, including certain financial outlook, pertaining to, without limitation, the following: Pembina's corporate strategy; expectations about commodity pricing, industry activities, supply, demand and development opportunities; expectations about future growth opportunities and demand for our service; expectations regarding new corporate developments and impact on access to markets; anticipated Adjusted EBITDA projections and financial performance expectations resulting from Pembina's capital expenditures; planning, construction, capital expenditure estimates, financing structure, schedules, regulatory and environmental applications and approvals, estimates regarding input and output volumes, in-service dates, rights, activities and operations with respect the PDH/PP facility (as defined herein). The forward-looking statements are based on certain assumptions that Pembina has made in respect thereof as at the date of this document regarding, among other things: oil and gas industry exploration and development activity levels and the geographic region of such activity; petrochemical industry conditions, including the estimated supply and demand and anticipated prices for petrochemical products and the commodity inputs associated herewith the success of Pembina's operations and growth projects; prevailing commodity prices and exchange rates and the ability of Pembina to maintain current credit ratings; the availability of capital to fund future capital requirements relating to existing assets and projects; future operating costs; geotechnical and integrity costs; that any third-party projects relating to Pembina's growth projects will be sanctioned and completed as expected; that any required commercial agreements can be reached; that all required regulatory and environmental approvals can be obtained on the necessary terms in a timely manner; that counterparties will comply with contracts in a timely manner; that there are no unforeseen events preventing the performance of contracts or the completion of the relevant facilities; that there are no unforeseen material costs relating to the facilities which are not recoverable from customers; prevailing interest and tax rates; prevailing regulatory, tax and environmental laws and regulations; maintenance of operating margins; the amount of future liabilities relating to lawsuits and environmental incidents; and the availability of coverage under Pembina's insurance policies (including in respect of Pembina's business interruption insurance policy). Although Pembina believes the expectations and material factors and assumptions reflected in these forward-looking statements are reasonable as of the date hereof, there can be no assurance that these expectations, factors and assumptions will prove to be correct. These forward-looking statements are not guarantees of future performance and are subject to a number of known and unknown risks and uncertainties including, but not limited to: the regulatory environment and decisions; the impact of competitive entities and pricing; labour and material shortages; reliance on key relationships and agreements; the strength and operations of the oil and natural gas production industry and related commodity prices; non-performance or default by counterparties to agreements which Pembina or one or more of its affiliates has entered into in respect of its business; actions by governmental or regulatory authorities including changes in tax laws and treatment, changes in royalty rates, climate change initiatives or policies or increased environmental regulation; the failure to realize the anticipated benefits or synergies of acquisitions due to the factors set out herein, integration issues or otherwise; fluctuations in operating results; adverse general economic and market conditions in Canada, North America and worldwide, including changes, or prolonged weaknesses, as applicable, in interest rates, foreign currency exchange rates, commodity prices, supply/demand trends and overall industry activity levels; ability to access various sources of debt and equity capital; changes in credit ratings; counterparty credit risk; technology and cyber security risks; and certain other risks detailed from time to time in Pembina s public disclosure documents available at and through Pembina's website at This list of risk factors should not be construed as exhaustive. Readers are cautioned that events or circumstances could cause results to differ materially from those predicted, forecasted or projected. The forward-looking statements contained in this document speak only as of the date of this document. Pembina does not undertake any obligation to publicly update or revise any forward-looking statements or information contained herein, except as required by applicable laws. Readers are cautioned that management of Pembina approved the financial outlook contained herein as of the date of this presentation. The purpose of the Adjusted EBITDA projections is to provide investors with an indication of the value to Pembina of the PDH/PP facility or our expected financial results. Readers should be aware that the information contained in the financial outlook contained herein may not be appropriate for other purposes. The forward-looking statements contained in this document are expressly qualified by this cautionary statement. 1

3 Non-GAAP measures In this document, Pembina has used the term adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA), which is a non-gaap measure. Management believes that Adjusted EBITDA provides useful information to investors as it is an important indicator of Pembina's ability to generate liquidity through cash flow from operating activities and is also used by investors and analysts for assessing financial performance and for the purpose of valuing the Company, including calculating financial and leverage ratios. Adjusted EBITDA does not have any standardized meaning under International Financial Reporting Standards ("IFRS") and should not, therefore, be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS. These Non-GAAP measures are calculated and disclosed on a consistent basis from period to period. Specific adjusting items may only be relevant in certain periods. For additional information regarding non-gaap measures, including reconciliations to measures recognized by GAAP, please refer to Pembina's financial reports, which are available on SEDAR at and at 2

4 Investment Summary

5 Overview Pembina and Petrochemical Industries Company K.S.C ("PIC"), a wholly-owned subsidiary of Kuwait Petroleum Corporation, to construct a world-scale, integrated propane dehydrogenation ("PDH") plant and polypropylene ("PP") upgrading facility ("PDH/PP Facility" or "Project") through their joint venture, Canada Kuwait Petrochemical Corporation ("CKPC") $4.5 billion estimated total project cost (gross), including IDC $2.5 billion net investment for Pembina Pembina has a 50% interest in CKPC and a 100% interest in certain supporting facilities PDH/PP Facility is expected to be in service in mid-2023, subject to environmental and regulatory approvals The Project is expected to generate annual Adjusted EBITDA of $275 to $350 million, net to Pembina Nameplate PP capacity of 550,000 metric tonnes ("MT") per annum ~23,000 bpd of propane consumed from Pembina's Redwater and area fractionators Pembina has executed a portfolio of long-term, primarily take-or-pay, fee-for-service and other similar commercial arrangements with third parties, representing in excess of 40% of the Project s expected Adjusted EBITDA, supporting development firmly within Pembina s guard rails See Forward-looking statements and information & "Non-GAAP measures." CKPC will convert 23,000 bpd of propane into 550,000 MT per year of high value PP 4

6 Investment rationale Western Canadian Sedimentary Basin ("WCSB") offers a long-term, structural feedstock advantage through access to an abundant supply of propane CKPC s PDH/PP Facility will create meaningful incremental local demand and provide a value-added opportunity for an oversupplied domestic propane market PP is a high value product with favourable long-term fundamentals PP is the 2 nd most commonly used polymer globally and has a broad range of everyday applications (1) Canada's manufacturing industry is essentially 100% reliant on imported PP (1) Global PP demand growth is outpacing global GDP growth (1) Existing third-party infrastructure provides cost-effective access to domestic and global PP markets Alberta PDH/PP Facility is highly strategic for CKPC's owners A material extension of Pembina s natural gas liquids value chain strategy furthering its goal of securing global market prices for WCSB-produced hydrocarbons Provides PIC a platform to meaningful expand into North American markets (1) IHS Market (May 2018), Statistics Canada See Forward-looking statements and information. This project benefits all of Pembina s stakeholders, the Province of Alberta, and all of Canada 5

7 Comprehensive risk mitigation supporting new business entry Through strong collaboration, Pembina, PIC and WCSB producers have de-risked the project to help ensure successful execution and develop a commercial framework that aligns with the interests of all parties Complementary strengths Pembina's Alberta project execution / operations experience & position as one of Canada's largest propane producers PIC's experience as a global marketer of petrochemical products (including PP) Development of new, high value markets for WCSB producers Capital cost Detailed front end engineering design ("FEED") completed, with a Class II capital cost estimate, by a leading global EPC firm; validated by industry experts including leading construction companies Enhanced FEED effort provides further definition to project scope and technical details Selected commercially proven technologies that are in wide-spread global application Guardrails / Fee-for-service Over 40% of Pembina s expected Adjusted EBITDA will be under long-term, primarily take-or-pay, fee-for-service and other similar commercial arrangements with third parties Weighted average tenor of the commercial arrangements is approximately 14 years; the vast majority being with investment grade counterparties Pembina and CKPC have developed a robust project risk management plan See Forward-looking statements and information. 6

8 Opportunity Overview

9 What is PP? PROPANE (C 3 H 8 ) PROPYLENE (C 3 H 6 ) POLYPROPYLENE (C 3 H 6 ) n CONSUMER PRODUCTS Reusable Shopping Bags Reusable Storage Containers Canadian Currency Automotive Parts RFS Complex / 3 rd Party Facilities CKPC PDH Facility CKPC PP Facility PP is a building block of everyday life and represents a large-scale, value-add opportunity for Alberta 8

10 Structural changes supporting investment thesis Pricing Impact 1 2 Alberta Propane North American Propylene Unprecedented growth in liquids-rich drilling across North America resulting in continent-wide oversupply of propane Infrastructure shift (2014 Cochin Pipeline reversal) forcing Alberta propane exports to travel exclusively by rail, increasing costs to reach markets and reducing Alberta propane prices; compounded by pipeline delays and increased rail congestion Rise of shale gas production leads to US steam crackers transitioning feedstock to lighter ethane from heavier naphtha, yielding less propylene Declining gasoline demand pressuring refinery utilization and yielding less propylene 3 North American PP Incremental capacity is needed to both satisfy growing demand and offset recent capacity rationalization (and potential export opportunities) Numerous applications see growing demand i.e. rising fuel economy standards and electric cars creates need for lighter automobiles Increasing demand for PP coupled with strong propane supply dynamics create an opportunity for Alberta PDH/PP See Forward-looking statements and information. 9

11 Structural surplus of Western Canadian propane Representative WCSB propane supply & demand (1) Western Canada contains an abundant and highly economic natural gas liquids resources Resource life of Western Canadian propane > 400 years WCSB propane production exceeds local demand by a factor of ~4x Surplus supply historically exported to the United States by rail United States now exporting over 1 million bpd of propane (1) NEB, AER, IHS Markit, Wood Mackenzie and Company filings. See Forward-looking statements and information Fundamentals support long-term surplus of Western Canadian propane 10

12 Alberta propane feedstock Historical Alberta propane prices (1) $2.50 Reflects Pipeline Costs After Cochin Reversal $0.80 Propane Price (US$/gl) $2.00 $1.50 $1.00 $ cpg Avg Spread Reflects Rail Costs 29 cpg Avg Spread $0.60 $0.40 $ ($0.20) ($0.40) ($0.60) Mont Belvieu - Edmonton Propane Spread (US$/gl) MB - Edm Spread (US$/gl) MB Propane (US$/gl) Edm Propane (US$/gl) Before Cochin Reversal After Cochin Reversal (1) OPIS, IHS Markit (December 2018). See "Forward-looking statements and information." Transportation cost drives structural discount for Edmonton propane relative to USGC ($0.80) 11

13 PP is a value-added product $2,500 North American PP to Edmonton propane price spread (1) $2,000 $1,500 US$/MT $1,000 $ Propane to PP Spread North America PP Price Edmonton Propane Price Average Propane to PP Spread (~US$1,200 per MT) (1) IHS Markit (December 2018). See "Forward-looking statements and information." Strong economic value proposition makes Alberta propane the ideal feedstock for PDH/PP complex 12

14 Significant global market opportunity for Alberta PP Long-term global PP supply & demand (1) North American PP demand by end use (2022E) (1) Raffia 2% Other 34% 80 Fiber 13% MM Mta Blow Molding 1% Film & Sheet 19% Existing Capacity New Capacity Hypothetical Capacity Demand Injection Molding 31% ~8.8 million MT annually (1) IHS Markit (May 2018). See "Forward-looking statements and information." Alberta projects are well-positioned to compete globally to meet rising global PP demand 13

15 CKPC's PP market opportunity Global market access North American PP Demand by Type (1) Impact Copolymer 31% Random Copolymer 11% Homopolymer 58% PP in North America moves primarily by rail One rail car used to transport PP would replace nearly two rail cars currently used to transport propane, thus creating additional rail capacity out of Alberta CKPC s North American target markets in U.S. Midwest, U.S. Northeast, U.S. Southwest & Canada encompass ~80% of continental PP demand Shipping costs to the US Midwest are expected to be competitive with US Gulf Coast Ability to produce homopolymer and copolymers (random and impact) increases CKPC's potential customer base Random and impact copolymers represent 11% and 31%, respectively of North American PP demand Cost-effective access to global markets via existing rail and port infrastructure (1) IHS Markit. See Forward-looking statements and information. By CKPC s By CKPC s in-service in-service date the date target the target market market is expected is expected to be to over be over 7 million 7 million MT annually Ta 14

16 CKPC Overview

17 CKPC: stronger than the sum of its parts Pembina RFS Complex Propane (~23,000 bpd) Propylene (550,000 MT) PP (550,000 MT) Canada United States Asia Third Party Fractionation Facilities PDH Facility PP Facility Shipping South America Pembina PIC Alberta-specific operating and project execution experience Feedstock connectivity & producer relationships Pembina is responsible for aggregating 100% of CKPC propane feedstock 50% 50% PDH & PP experience, along with global marketing channels PIC will market 100% of PP Alberta experience through 42.5% investment in MEGlobal Affiliated with Kuwait Foreign Petroleum Exploration Company Key Duvernay producer Complementary owner experience Western Canadian propane and global PP marketing experience See Forward-looking statements and information. 16

18 PIC overview PIC is the global petrochemical arm of Kuwait Petroleum Corporation with a mandate to continue expanding its asset base worldwide PIC has been operating for over 50 years and has a portfolio of assets spanning eight countries Encompassing production and marketing of fertilizers, aromatics, olefins and polymers Extensive global marketing experience with a worldwide sales position, serving all regional markets Mega project implementation experience backed by a strong financial position Kuwait s investment grade sovereign credit rating: Aa2 (Moodys), AA (S&P) Ownership Overview State of Kuwait (100%) Fully owned Joint Ventures See Forward-looking statements and information. PIC brings global petrochemical experience and financial strength to the Project 17

19 PIC's significant and growing global marketing reach 1,000 kta+ 550 kta 335 kta 825 kta 150 kta 940 kta 1,400 kta 850 kta 1,200 kta 750 kta 450 kta 300 kta Global 3 rd Party Supply 3,500 kta EG marketed out of: Houston, Dubai, Shanghai, Switzerland, & Hong Kong PP (PIC as Marketer) Polyethylene / PET (EQUATE as Marketer) Ethylene Glycol (EQUATE as Marketer) Paraxylene (PIC as Marketer) Styrene (EQUATE as Marketer) PIC and its JV partners have visibility to marketing in excess of 12 million tonnes of petrochemical products globally Dotted lines denote facilities under construction/development. Logos denote facility owner. See Forward-looking statements and information. kta denotes thousand metric tonnes per annum 18

20 Project Details

21 Ideally located adjacent to Redwater complex CKPC PDH / PP RFS II / III RFS I / ROF Rail & Storage CKPC s facility is strategically located adjacent to Pembina s Redwater fractionation complex 20

22 Propane supply Propane Supply Capacity WCSB propane production exceeds local demand by a factor of ~4x Far reaching natural gas liquids capture network with 150+ receipt points across four distinct pipelines Peace C3+ Peace C2+ Northern C2+ Brazeau C2+ RFS I C2+ RFS II C2+ RFS III C3+ ~20 Mbpd ~20 Mbpd ~20 Mbpd ~23 Mbpd demand Third-party Facilities See Forward-looking statements and information. Pembina has unparalleled access to diverse propane supplies to feed CKPC's project 21

23 Capital cost and funding summary Total cost of the PDH/PP Facility is expected to be $4.5 billion, including IDC, based on CKPC's Class II estimate Includes $500 million of certain supporting facilities of which Pembina will own 100% Pembina is committed to funding using equal amounts of debt & equity, with equity contributions funded from cash flow after dividends Asset level debt financing provides balance sheet flexibility for both Pembina and PIC/KPC Project Capital Cost Summary Project Capital Cost Summary PPL PIC $0.5 BB CKPC Owner Equity CKPC Project Level Debt $2.0 BB $2.5 BB Supporting facilities funded by Pembina Pembina s share of the Project totals $2.5 billion See Forward-looking statements and information. 22

24 Commercial highlights When evaluating investment opportunities Pembina works to ensure its financial guardrails are maintained Two of these financial guardrails relate to fee-for-service contribution: Maintain target of 80% fee-based contribution to Adjusted EBITDA Target <100% payout of fee-based distributable cash flow To maintain these guardrails Pembina has secured a portfolio of primarily-take-or-pay, fee-for-service and other similar commercial arrangements with third parties: Weighted average tenor of these arrangements is approximately 14 years Vast majority of arrangements are with investment grade counterparties >40% Fee-for-service Adjusted EBITDA to Pembina ~14 years Weighted average tenor of commercial arrangements >40% of Pembina s expected Adjusted EBITDA under long-term, primarily take-or-pay, fee-for-service and other similar commercial agreements See Forward-looking statements and information & "Non-GAAP Measures". 23

25 A prudent approach to manage risk Capital Cost Detailed FEED completed with Class II capital cost estimate Securing EPC lump sum contracting to ensure cost certainty for key portions of the project's scope Project located in the Alberta Industrial Heartland with access to Alberta High Load Corridor Ability to leverage underutilized local modular shops Access to skilled workers located in the Edmonton area Local area knowledge through recent RFS capital program that exceeded $1 billion Commercially proven PDH and PP process technologies Propane Price Access to proximate, diverse, abundant, low cost propane supply Natural hedge on propane volumes to which Pembina has price exposure today PP Market Access & Pricing Ability to produce both homopolymer and copolymers grades (impact and random) maximizes market entry opportunities PIC will leverage its existing global PP production to begin pre-marketing efforts including PP sales to customers Pembina & PIC have developed a robust project risk management plan See Forward-looking statements and information. 24

26 A prudent approach to manage risk Plant Start-up Delay Selection of commercially proven technologies Use of top tier engineering, procurement and construction contractors Committed Feedstock CKPC has executed a long-term propane supply agreement with Pembina for all the required feedstock for the PDH plant Plant Performance Training and support from PDH and PP technology licensors Leverage PIC's existing industry / operations knowledge Opportunity to recruit both globally and locally for management and operations teams CKPC has already engaged industry experts to support operations planning processes Pembina s Guardrails >40% of Pembina s expected Adjusted EBITDA is under long-term, primarily take-or-pay, fee-for-service and other similar commercial arrangements with third parties Pembina & PIC have developed a robust project risk management plan See Forward-looking statements and information. 25

27 Summary

28 Significant alignment with Pembina s corporate strategy Preserve Value Diversify Implement Growth Secure Global Markets Creates a significant local market for WCSB propane (>60% increase in current local demand) Seamless integration to Pembina's Western Canadian NGL value chain De-risks propane egress from Alberta and reduces rail congestion >40% of Pembina s expected Adjusted EBITDA is underpinned by long-term, primarily take-or-pay, fee-for-service and other similar commercial arrangements with third parties Integrated downstream extension of Pembina's value chain Offers customers an integrated solution from well head to high value PP Offers customers access to diverse propane markets via Pembina exports via Prince Rupert Terminal, export via North American rail and domestic & global PP sales Creates a new vehicle for future growth with an aligned global partner Creates opportunity for integrated gas processing / pipeline transportation / fractionation / petrochemical business development Generate expected annual run-rate Adjusted EBITDA of $275 million to $350 million, net to Pembina Opportunity to secure global market PP pricing for ~23,000 bpd of WCSB propane Leverages Pembina s position as one of the WCSB s largest propane producer Favourable global market conditions for PP over the near and longer term See Forward-looking statements and information & "Non-GAAP measures." CKPC s PDH/PP Facility aligns with Pembina s long-term strategy 27

29 Project has a strong investment thesis Project has a long-term, diversified, secure, well-connected and abundant supply of propane feedstock Cost effective PP market access to domestic and global export markets via existing rail infrastructure Pembina and PIC are experienced, well-funded and strategically aligned partners with complementary strengths PP has robust long-term demand globally and Canada is essentially 100% reliant on imported PP (1) Selected EPC contracting strategy to secure cost certainty for key portions of the project's scope Experienced project team prepared for transition from development to execution PDH/PP is a highly strategic investment opportunity and CKPC is ideally positioned for its successful execution (1) IHS Market (May 2018), Statistics Canada See Forward-looking statements and information. 28

30 CONTACT US Pembina Pipeline Corporation Suite th Avenue S.W. Calgary, Alberta T2P 1G1 investor-relations@pembina.com Toll free: Phone: